Category: buy to let finance

It looks as though 2018 will be a mixed year for landlords. Some will start to feel the pinch of the legislation that’s recently come into force, such as the loss of mortgage interest relief, while a number of tenants may give notice, due to incentives to buy. At the same time, there are likely to be some good deals around for landlords looking to expand their portfolios. For the rest, who may not have the means to buy in the next 12 months, it’s a good opportunity to take stock of their portfolio and make small improvements where needed to help translate rental income into better profits.

Do your due diligence before acquiring new properties

Landlords with four or more properties who are planning to expand their portfolios in 2018 need to make sure they understand the new portfolio lending criteria that came into effect on 1st October. With the additional information that lenders now require for the mortgage application, all landlords should be prepared to monitor the value, income, expenditure and level of borrowing associated with each investment property.

Landlords who took out the high loan-to-value mortgage deals that were available in the past might find that although they want to buy, they can’t because they’re too highly leveraged. In that case, 2018 could be a year of reinvesting rental profits into paying off mortgage loans in order to reduce the LTV of the portfolio and aim for LTVs of 75%. For more information please contact Gail at Alexander Chase on gailnorris@alexander-chase.co.uk

Check the market for bargains

Those landlords who are able to buy next year are likely to face less competition from other investors than in the past, as many will be holding back in light of the ongoing profit squeeze. In addition, the continuing pressure on affordability for homeowners means that well-capitalised landlords should be able to take advantage of some good deals in cheaper parts of the country, particularly from vendors who are under some time pressure to sell.

A ready-made income stream

Given that around a fifth of landlords plan to sell some or all of their properties in the next few years, according to a recent CML survey, there are also likely to be some ‘ready-made’ rental deals on the market. There are some real benefits to this kind of purchase:

If a landlord is keen to offload their investment, especially if they’ve held it for several years and have little or no mortgage borrowing, they may be prepared to do a deal for a quick purchase

The property should be in ready-to-rent condition, meaning little or no additional capital input is required.

It could come with a sitting tenant, meaning income from the moment the purchase completes.

However, make sure you have a lettings legal specialist handle the purchase so tenancy contracts are thoroughly checked and understood.

Review your portfolio with an IFA

Although there is likely to be a slowdown in the supply of new rental properties coming to the market, due to the increased financial and mortgage regulation burden on landlords, landlords may struggle to increase rents during 2018 because wages are still rising at a slower rate than inflation.

On top of that, Capital Economics expects the typical mortgage rate to rise above three per cent by the end of 2019, off the back of successive Bank of England base rate increases. That means landlords who are not on fixed rate deals will need to keep an eye on their profits, especially if their local market is unable to support an increase in rents.

As such, if you have not carried out a financial portfolio review recently, it might be wise to consult with an independent financial adviser and/or property tax specialist early in the new year and, of course make sure you speak to your mortgage broker. They can consider your property investments and should be able to make recommendations on how you can maximise your profits.

Make sure you have the right managing agent

The raft of government-driven legislative changes that we have seen over the last decade is showing no sign of letting up, so it’s vital that landlords understand and keep track of new and upcoming legal changes through 2018. Three key things that will soon affect all letting agents are the obligation to take out Client Money Protection insurance, the upcoming ban on letting fees for tenants and regulation of agents, which is coming into force in Scotland after 31st January and therefore likely to follow for England in the near future.

The simplest way for landlords to make sure their property is legally let and both they and their tenants are properly looked after and protected, is to engage a managing agent that is a member of ARLA Propertymark or RICS. That guarantees rental monies and gives you peace of mind that your let will always comply with the latest legislation and be professionally managed.

The property market today is very different to that of a 15-20 years ago, when the steep growth in capital values meant it was easy to make money from property. But far from being a bad thing, the aftermath of the credit crunch has resulted in the development of a more regulated market, increasingly professional landlords and a more responsible industry – and that has led to safer, better homes for tenants. And as long as investors continue to buy and let with caution and care, the signs are that both the property market and investment returns will continue on their current steady growth path.

Legislation for 2018: round up

Thankfully, the Autumn Budget didn’t have any nasty surprises for landlords this time, but 2018 is going to be the year when previous legislation and pledges made in February’s Housing White Paper really start to take effect. There are also a number of consultations in the pipeline, which landlords have the opportunity to get involved with, via the government’s website.

April is when two key pieces of legislation will impact landlords. Firstly, it will become illegal to create or renew a tenancy agreement for a property that has an F or G rating on the Energy Performance Certificate. So, if you know your property isn’t up to standard, you have just three months to upgrade and install energy efficiency measures (unless the property is exempt). You should then arrange for an up-to-date EPC assessment to confirm that your rating meets requirements. If your property is found not to be rated E or above, the council can issue a civil penalty of up to £4,000.

The second thing to remember is that the second phase of the withdrawal of higher-rate interest relief comes into effect. From the tax year 2018/19, buy to let investors will only be able to deduct 50% of their finance costs at the higher rate; the remaining 50% must be claimed at the basic rate of 20%. If you haven’t already done some forward projections to 2020, when the 20% rate will apply to the full mortgage interest costs, now is the time to do so.

The relationship between rental income and the amount you can borrow to finance your investment is one of the most important.

One of the first checks lenders make when you apply for a buy-to-let mortgage is whether the rental income is high enough to cover the repayments and associated costs of letting the property.

Although it can vary, lenders usually want rental income to be 125-130 per cent of the amount you repay on the mortgage each month. Knowing this, it makes sense for you to check these figures for yourself, before you apply, by following these steps:

From the 30th September this year, landlords with four or more buy-to-let properties will have to satisfy different criteria to secure mortgage borrowing, as they will be considered ‘portfolio investors’ under new rules being introduced by the Prudential Regulation Authority.

This three bedroom semi-detached property offers spacious accommodation throughout, with the potential to add a fourth bedroom on the ground floor it is perfect for a modern family. With well presented rooms and rear garden this property won’t be on the market long.

To the ground floor this property compromises in brief; entrance hallway, lounge, study/fourth bedroom and a large kitchen/breakfast room great for entertaining.

The first floor then reveals three well proportioned bedrooms and family bathroom.

Externally this property offers a good sized rear garden. There is also potential to create off road parking at the front of the property.

The potential yield for this property is 6.4% which is based on the rental figure of £750 pcm. Situated near Bredbury train station, local amenities and the M60 motorway, this property is ideally located and would attract a lot of families.

Currently on the market with Edward Mellor, Woodley and Bridgfords, Stockport for £139,950.

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About the blog

This blog follows the property and buy to let market in Marple, The Bridge, Mellor and Compstall. You’ll find insight, commentary and analysis that relates specifically to SK6, along with the latest investment deals from all agents in the area.

jonathan hyde – the author

I have always worked in property and originally opened and head up Julian Wadden Marple. I am passionate about our area, so if you have any property related questions, whether buying, selling, letting out or just curious about what’s happening this very moment in the Marple, Marple Bridge, Mellor and Compstall property market then just pop into my office, alternatively call or e-mail me. I look forward to hearing from you and having a chat.